Iceland did it right – you have to take over your own banks that went out of control, disallow their debts, throw out and then hunt down the crony politicians that were enabling them, and not least shut out the foreign banks that were involved in the scams.
Outperforming Euro Area
Iceland’s economy will grow faster than the euro-area average this year and next, the IMF estimated in September. The cost of insuring against an Icelandic default, using credit default swaps, is lower than the average for the euro area.
Iceland’s economy will grow 2.5 percent this year and next, versus 1.6 percent in the euro area this year and 1.1 percent in 2012, the IMF said Sept. 20. Next year, Iceland’s current account surplus will widen to 3.2 percent of the economy and unemployment will be 6 percent, versus 9.9 percent joblessness in the euro area, the fund said.
The stabilization of the island’s economy has allowed the central bank to press ahead with capital liberalizations that the government estimates won’t be fully dropped until 2013. The approach allows foreign investors eager to offload their krona holdings to transfer them to foreign or local investors willing to commit long-term to the island, according to the central bank.
Foreign Direct Investment
“This will show how much interest there is in direct foreign investment in Iceland,” Gudmundsson said. “This step will help us considerably in reducing the amount of offshore kronur and transferring them from those, who might unwillingly hold them, into the hands of those who are willing to use them in Iceland. That will have a great effect on how we’ll be able to move on to the full abolishment of capital controls.”
The process is the second step of the first phase in easing controls. The first step had allowed investors, via foreign currency auctions, to place kronur in long-term government bonds. The second step broadens the terms to allow investors to place their kronur in assets such as equities and real estate. The bank isn’t progressing according to a timetable, and announces each step once the economic and financial conditions are in place.